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Market Lab Report - VIX is near decade lows. SELL ?!


A number of financial news accounts have mentioned how the market must correct sooner than later because the VIX is trading near lows not seen since 2007. It is true that since 2013, whenever the VIX trades around or below the 11 level, the market would have a correction of some magnitude. 

But keep in mind that the only thing that is constant when it comes to markets is change. Morphing markets are what keeps our lifelong interest as investors. 

In late 2006, the VIX dropped to new near all-time lows. Media accounts back then kept saying the market must correct with the VIX plunging to new lows. Instead, the general market continued the strong uptrend it began in August all the way through December, or five months.

This period marked a confluence of leading names offering numerous pocket pivot and buyable gap up buy points. More than doubling one's account was achievable. My personal trading account netted just over 115% over this period from the opening of positions in August to the closing of final positions in December. 

The current post-election rally has not been nearly as strong as those five months in 2006, but nevertheless, the trend remains up. If the VIX fell all the way down to 9.39 matching the lows it hit in December 2006, this would suggest at least several more weeks left in the life of this uptrend before any material correction. 

Of course, the VIX could drop even further than 9.39 if conditioned warranted. Or, on the other hand, it could indeed spike higher on some negative news which could spur on a market correction.

Watch your stocks. Price/volume action always comes well ahead of trying to predict or "game" the market based on the numerous indicators favored by analysts. So while it's true that the market tends to correct when the VIX trades around or below 11, markets change. And markets are certainly different today than they were prior to the election.

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